When it comes to group health plans, the two primary categories are fully insured and self-insured. But what do these categories entail, and what do employers need to know about them? Let’s break it down.
Fully Insured vs. Self-insured Health Plans: The Basics
In a fully insured health plan, the financial risk is largely placed on the insurance carrier rather than the employer. The employer’s liability for health care expenses is restricted to the cost of the insurance premiums.
On the other hand, a self-insured health plan places most of the financial risk on the employer. The employer pays for medical claims as they are processed throughout the year, rather than paying fixed premiums to an insurance company. Even though they operate differently, level-funded health plans are usually considered self-insured when it comes to compliance.
Compliance Requirements: Similarities and Differences
Regardless of the type of health plan, there are a variety of federal compliance requirements that apply to both fully insured and self-insured health plans.
These include the following requirements:
- ERISA (e.g., SPD, Form 5500, fiduciary rules)
- Medicare Part D notification requirements
- HIPAA special enrollment
- Medicare Secondary Payer rules
- HIPAA nondiscrimination (based on health factors)
- Annual notice under the Children’s Health Insurance Program (CHIP)
- COBRA (applies to employers with 20 or more employees)
- Employer shared responsibility rules (applies to applicable large employers, or ALEs)
- Mental health parity
- Patient protections on surprise medical billing
- Transparency requirements (e.g., prescription drug data collection reporting, prohibition on gag clauses and self-service price comparison tool)
- Affordable Care Act (ACA) market reforms (e.g., first-dollar coverage for preventive care, prohibition on lifetime and annual limits, overall cost-sharing limit and age 26 coverage mandate)
However, there are some significant differences when it comes to compliance rules for fully insured vs. self-insured health plans. For example, self-insured health plans offer more design flexibility as they are not subject to state insurance mandates, mini-COBRA laws, or the essential health benefits (EHB) coverage requirement. They are, however, subject to nondiscrimination rules that don’t apply to fully insured health plans, and they must adhere to the wide range of compliance obligations under the HIPAA Privacy and Security Rules.
Key Compliance Requirements: A Comparative Look
To provide a clearer picture, let’s look at key compliance requirements that apply differently to fully insured and self-insured health plans:
Nondiscrimination Rules
- Self-insured health plans are subject to nondiscrimination rules under Code Section 105(h). Under these rules, self-insured health plans cannot discriminate in favor of highly compensated employees with respect to eligibility or benefits.
PCORI Fees
- The ACA imposes a fee on health insurance issuers and employers with self-insured health plans to help fund the PCORI. The fee, called the PCORI fee, is calculated based on the average number of lives covered under the policy or plan. It must be reported and paid each year by July 31. Employers with fully insured health plans are not required to pay PCORI fees.
State Continuation Coverage (mini-COBRA)
- Fully insured health plans must comply with applicable state continuation coverage requirements (depending on the specific state law). Self-insured health plans maintained by a single employer (or a group of employers under common control) are not subject to mini-COBRA laws due to ERISA’s preemption provision.
EHB Package
- Non-grandfathered fully insured health plans in the small group market must offer a comprehensive package of items and services, known as the EHB package. Fully insured health plans in the large group market and self-insured health plans are not subject to this requirement.
State Insurance Mandates
- Fully insured health plans must comply with applicable state insurance mandates, which require these plans to provide coverage for certain benefits, providers and individuals. Self-insured health plans maintained by a single employer (or a group of employers under common control) are not subject to state insurance mandates.
Premium Rating Restrictions
- Non-grandfathered fully insured health plans in the small group market are subject to the ACA’s premium rating restrictions. Premium rates may only vary based on age, geography, family size and tobacco use. Fully insured health plans in the large group market and self-insured health plans are not subject to these restrictions.
HIPAA Privacy and Security Rules (HIPAA Rules)
- The HIPAA Rules apply to both fully insured and self-insured health plans. However, most employers with fully insured health plans have minimal compliance responsibilities under the HIPAA Rules because they do not have access to protected health information from their insurance carriers. In this situation, almost all the HIPAA compliance requirements fall on the carrier, not the employer. On the other hand, employers with self-insured health plans must comply with the wide range of HIPAA Privacy and Security requirements, including providing a privacy notice, conducting HIPAA training, implementing security safeguards, and adopting certain policies and procedures.
Health Coverage Reporting (Code Section 6056 and/or Section 6055)
- ALEs with fully insured or self-insured health plans are subject to reporting under Code Section 6056 (IRS Forms 1094-C and 1095-C). To qualify as an ALE, an employer must employ, on average, at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.
- Employers with self-insured health plans are also subject to reporting under Code Section 6055 (IRS Forms 1094-B and 1095-B). ALEs with self-insured health plans are required to report under both Code Sections 6056 and 6055. These employers use a combined reporting method by filing IRS Forms 1094-C and 1095-C and completing coverage information in Part III of Form 1095-C.
Form 5500 – Filing Exemption for Small Plans
- Employers that are subject to ERISA must file an annual report (Form 5500) with the Department of Labor for their employee benefit plans. This annual reporting requirement applies to both fully insured and self-insured health plans. However, health plans are exempt if they have fewer than 100 covered participants at the beginning of the plan year and are unfunded or fully insured (or have a combination of unfunded and fully insured benefits). Small self-insured health plans that use a trust or separately maintained fund for paying benefits do not qualify for this exemption.
